The upcoming $3 billion Bitcoin (BTC) monthly option expiring on September 29 could be critical to support at $26,000.
BTC price faces serious resistance
On the one hand, Bitcoin’s recognition in China appears to be strengthening after a judicial report by a Shanghai court recognized the uniqueness and non-replicability of digital currencies.
Instead, Bitcoin’s spot trading volume has dropped to a five-year low, according to on-chain analytics firm CryptoQuant. Analyst Cauê Oliveira noted that an important factor behind the decline in transaction activity was growing concerns about the macroeconomic outlook.
Despite the increase in long-term holders, reduced trading volume brings the risk of unexpected volatility. This means that without enough active participants, price fluctuations resulting from the liquidation of derivative contracts could cause structural market harm.
Additionally, traditional financial institutions are increasingly uncomfortable handling cryptocurrency-related payments.
JPMorgan Chase, the largest bank in North America, has reportedly banned “crypto-asset-related” transfers within its retail unit Chase. The above reasons are to prevent potential participation in fraudulent or fraudulent activities.
Finally, Bitcoin holders are worried as the U.S. Dollar Strength Index (DXY), which measures the U.S. dollar’s strength against other currencies, hit 106 on September 26, its highest level in 10 months.
Historically, the index has been negatively correlated with risk assets, tending to rise when investors seek the safety of cash positions.
Are Bitcoin bulls too optimistic?
Open interest for the Sept. 29 options expiry currently stands at $3 billion. However, the final amount is expected to be lower due to bullish expectations for Bitcoin prices to reach $27,000 or higher.
An unsuccessful attempt to break above $27,200 on September 19 may have led to overconfidence among Bitcoin investors.
The put-to-call ratio of 0.58 reflects an imbalance between $1.9 billion in call (buy) open interest and $1.1 billion in put (sell) options.
However, if the Bitcoin price remains near $26,300 at 8:00 AM (UTC) on August 25, there will only be $120 million worth of call (buy) options available. This discrepancy occurs because the right to purchase Bitcoin at $27,000 or $28,000 is useless if the price of BTC is below that level at expiration.
Bitcoin on track to top $26,000 for maximum profit potential
Here are the four most likely scenarios based on current price action. The number of option contracts available on September 29 for the call (buy) and put (sell) instruments changes based on the expiration price. An imbalance that favors both parties constitutes a theoretical profit.
This rough estimate ignores more complex investment strategies. For example, traders can sell call options, effectively gaining negative exposure to Bitcoin above a specific price. Unfortunately, there is no easy way to estimate this effect.
- Between US$25,000 and US$26,000: 1,400 calls and 19,300 puts. The final result was $430 million in favor of the bearish instrument.
- Between US$26,000 and US$27,000: 6,200 calls and 12,600 puts. The final result was $170 million in favor of the bearish instrument.
- Between US$27,000 and US$27,500: 9,900 calls and 10,100 puts. The end result is a balance between calls and puts.
- Between US$27,500 and US$28,000: 12,000 calls and 8,900 puts. The final result was in favor of the bullish instrument at $85 million.
Notably, for bulls to level the playing field before the monthly expiration, they would need to move the price up 3.2% from $26,200. In comparison, bears only needed a minor 1% correction below $26,000 to gain a $430 million advantage on September 29.
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Given that Bitcoin traded below the $26,000 support between September 1 and 11, it wouldn’t be surprising if there were another break above that level as the options expiration date approaches. Additionally, investor sentiment is becoming increasingly risk averse, as evidenced by the S&P 500 index falling to its lowest level since June.
Therefore, unless there is major news or events that strongly favor Bitcoin bulls, the probability of BTC price falling below $26,000 on September 29 remains high.
This article is for general information purposes only and is not intended to be, and should not be construed as, legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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